EUR/USD strengthens as soft US inflation data keeps US Dollar on backfoot

EUR/USD recovers further to near 1.1250 as the US Dollar suffers after the release of the soft US inflation data for April. US President Trump criticized Fed Powell again for not lowering interest rates. ECB Villeroy says he is hopeful of another interest-rate cut before the summer ends. EUR/USD trades firmly near 1.1250 during North American trading hours on Wednesday. The major currency pair moves higher as the US Dollar (USD) underperforms, with t he US Dollar Index (DXY) – which gauges the Greenback’s value against six major currencies – extending its retracement from the monthly high of 102.00 to around 100.50. The Greenback suffers as US President Donald Trump criticized the Federal Reserve (Fed) again for not lowering interest rates after the release of the softer-than-expected Consumer Price Index (CPI) data for April on Tuesday. The data showed that the headline CPI rose by 2.3%, the lowest level in over four years. “No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done,” Trump said in a post on Truth Social and added: “What is wrong with Too Late Powell? Not fair to America, which is ready to blossom? Just let it all happen, it will be a beautiful thing!”. Despite slowing inflationary pressures and calls for interest rate cuts from US President Trump, traders have not pared bets supporting the Fed to cut borrowing rates before the September policy meeting. According to the CME FedWatch tool, the probability of the Fed keeping interest rates steady in the range of 4.25%-4.50% in July is marginally down to 63.3% from 65.1% seen on Tuesday. It seems that an improvement in the US economic outlook due to the agreement with China for a temporary trade truce has absorbed the impact of cooling inflationary pressures. On Monday, the US and China agreed to avert a full-blown trade war and lowered tariffs by 115 percentage points. Daily digest market movers: EUR/USD gains as Euro outperforms The strength in the EUR/USD pair is also driven by Euro (EUR) outperformance against its major peers, except the Japanese Yen (JPY), on Wednesday. The major currency performs strongly as the confidence of market experts in the Euro’s status as “reserve currency” is increasing. Analysts at Capital Economics stated that the single currency now has its best shot in years at narrowing the gap as a reserve currency, just as United States (US) President Donald Trump’s policies chip away at the greenback’s safe-haven crown. They also argued that Germany’s decision to break fiscal rules to boost defence and public spending has increased the demand for the Euro as a “reserve currency”. During European trading hours, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel also said at a panel discussion at the New Economy forum in Madrid that the “ role of the Euro will become stronger as a reserve currency over the next few years “. On the monetary policy front, ECB officials continue to stress the need to reduce interest rates further amid increasing confidence that US tariff policies will not increase Eurozone inflation. Theoretically, lower interest rates by the ECB bode poorly for the Euro. “We don’t see inflation picking up. The Trump administration’s protectionism will lead to a restart of inflation in the US, but not in Europe, which will likely allow for another rate cut by the summer,” ECB policymaker and Governor of the Bank of France Francois Villeroy de Galhau said, Reuters reported. Meanwhile, investors seek fresh cues on the progress of trade talks between the US and the European Union (EU). Investors have become anxious due to an absence of commentary from the White House about any progress in trade talks with the trading bloc, assuming sluggish efforts from the European Commission (EC) in resolving trade issues. This week, the major trigger for the shared currency pair will be the speech from Fed Chair Powell at the Thomas Laubach Research Conference in Washington on Thursday. Fed Powell is expected to provide fresh guidance on the monetary policy outlook in the wake of a temporary truce between the US and China. On the economic front, investors will focus on the Retail Sales and the Producer Price Index (PPI) data for April, which will be released on Thursday. Euro PRICE Today The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Australian Dollar. The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote). Technical Analysis: EUR/USD climbs to near 1.1250 EUR/USD extends its recovery to near 1.1250 on Wednesday. The pair bounces back strongly and recovers above the 20-day Exponential Moving Average (EMA), which trades around 1.1220, suggesting that the trend has turned bullish. The 14-period Relative Strength Index (RSI) recovers strongly from 40.00, suggesting that bullish bias is intact. Looking up, the April 28 high of 1.1425 will be the major resistance for the pair. Conversely, the March 11 high of 1.0950 will be a key support for the Euro bulls. Fed FAQs Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback. The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis. In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar. Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar. Source: https://www.fxstreet.com/news/eur-usd-extends-recovery-as-soft-us-inflation-data-keeps-us-dollar-on-backfoot-202505141003